Choosing a CDN

CDN Pricing Data
Current low prices likely to rise as market stabilizes in 2008
With all the talk in the market about the "pricing wars" taking place in the CDN industry, each quarter I review and post at www.CDNPricing.com what the average going rate is and how it compares to pricing from the previous quarter.

Before I get into detail about pricing, there are some crucial things to cover. For starters, these are the average prices paid in the market. This does not mean that this is what every customer pays or what every customer should pay. I list a high and low price based on the fact that there are a lot of variables with regards to the CDN product that end up determining the final price a customer pays. It is also very important to understand that customers are not buying on price alone. You cannot compare one vendor to another simply based on price, because it is rarely an apples-to-apples comparison. You can only compare the product lines of one vendor with another.

That said, below is the pricing I found for Q4 2007 and how it compares with data gathered earlier in the year. (Pricing for Q1 2008 will be published at www.CDNPricing.com in April.) If you look at these numbers by themselves, you will not get a full picture of the market. First, read the post on my blog titled "Pricing Pressure On Akamai and Limelight Overblown by Analysts" (http://blog.streamingmedia.com/the_business_of_online_vi/2007/11/pricing-pressur.html), which will give more insight into pricing trends.

The high- and low-pricing average went down from Q3 to Q4. The reason behind that is the fact that a lot of new CDNs in the market are undercutting the more established players to try and grab some market share. Can they do this for a while? Yes. But over time, they won’t be able to, as they will lose money. Many of the new CDNs have raised a lot of cash and can survive, for the time being, with underpriced services. For a new CDN, it is hard to sell a customer on value when you are new to the space and don’t have a lot of customers to talk about. Over time, if they are successful, they won’t have to lower prices and can sell on value. But it won’t happen right away.

Even though the numbers seem to suggest a trend toward pricing-based competition, that doesn’t mean every CDN in the market is undercutting the major players. In some cases they aren’t, and they are selling on different features and functionality not price. The bottom line is that pricing is still very fluid in the market on large deals of more than 100TB delivered per month, but the impact on the market is not as big as many make it out to be. The whole idea that the CDN space is about to implode because there is a "pricing war" going on is inaccurate and backed up by no data. Are some companies not growing as fast as investors may like? Yes. But don’t blame the current or future price in the market on that single factor. Again, there is more to a CDN than just the price.

And this year, pricing will be going up. When the new players in the market have been around for 6-plus months, pricing will stabilize and many will realize they don’t need to lower pricing to do a land grab. By then they should also have enough in place on their networks to have an angle to upsell. We are at the point now where pricing has pretty much leveled off. Sure, there will always be fluctuation in the market, but come 12 months from now, you won’t see all that much change in pricing from the established players. They won’t give this stuff away at a lower price just to win business if they are going to lose money on the deal. Those days are over.

Also note that the pricing below is for video delivery in general, with no differentiation between streaming and progressive download. This pricing does not include the platform license fee that CDNs charge for Flash streaming, which recently went down to about 1 cent per GB delivered. The below numbers do not include video delivery costs via P2P—I will break those costs down on my blog in a forthcoming post in Q1 2008.

So with all that said, below is what the going rate is for video delivery based on a per-GB-delivered model. These figures are based on actual contracts and RFPs I have seen in the market and those that come from customers telling me on a weekly basis what they are paying.